Unilever Plc accelerated price increases to the highest rate in years, offsetting increased raw material costs and a decline in shipments in southeast Asia due to Covid-19 outbreaks.
The maker of Lifebuoy soap and Oxo beef stock said it increased pricing by 4.1% in the third quarter, the fastest in at least five years. That offset an unexpected decline in shipments.
Consumer industry rivals, ranging from Procter & Gamble Co. to Nestle SA to Danone SA, have all warned of strained supply chains and soaring commodity costs. The risk is that price increases may lead consumers to switch to cheaper products from rivals.
“We continue to responsibly take pricing and that’s in relation to the very high levels of inflation we’re seeing,” Chief Financial Officer Graeme Pitkethly said. Inflation in the consumer-goods industry is in the “high teens” overall, with Unilever seeing an inflation impact slightly below those levels due to its negotiating power, he said.
Inflation could be worse next year and the company may have to deal with spot pricing as its hedges expire, the CFO said. Unilever is seeking to offset some of the impact through efficiency measures, and the company expects to generate slightly more than its annual target of 2 billion euros savings in 2021.
About 20 billion euros worth of annual raw materials and packaging costs and 3 billion euros worth of annual logistics costs have been impacted by inflation, Pitkethly said. Unilever has been suffering from higher prices for commodities such as palm oil, soybean oil and crude oil derivatives including resin, as well as shipping costs.
A steep decline in demand in the important market of southeast Asia offset stronger performance in the U.S., China and India. Vietnam was especially impacted by Covid-19 and was locked down for most of the quarter, with the army delivering food supplies to residents. Southeast Asia was responsible for two-thirds of the 1.5% decline in third-quarter volume, Pitkethly said on a call with reporters.
Sales rose 2.5% on an underlying basis in the third quarter. Analysts expected growth of 2.6%.
The shares have dropped 6% this year, on track for their worst performance since the financial crisis.
©2021 Bloomberg L.P.